Party politics obstructs productive tax reform
When it comes to taxes, it’s rare that Republicans and Democrats will agree. Ask any of the students who are in AU Democrats or College Republicans and you’ll probably get these results: Republicans want lower taxes, and Democrats view higher taxes on the wealthy as helping to close the income inequality gap.
Effective tax reform that allows for a pro-growth economy while also helping reduce inequality, a vital belief of many here at AU, would completely throw out the current tax code of over 5,000 pages and replace it with a simpler and fairer model.
The corporate tax rate in the U.S. is currently 35 percent, the highest rate in the developed world. Democrats have consistently called for increasing rates, and Republicans have called for no-strings-attached tax decreases, but both of these ideas dodge the issue of completely reforming the tax code.
Both parties are wrong, and that should come as no surprise to anyone.
In 1986, former President Ronald Reagan signed into law a historic tax reform bill that lowered America’s corporate tax, and made the country the most business-friendly nation in the world. Following Reagan’s example, the U.S. should again take a big step forward in tax reform, and completely eliminate the corporate tax in the U.S. Total revenue from corporate taxes amounts to only 8 percent of federal funds, and this money is largely unnecessary to a bloated federal budget.
It would be better to sacrifice that revenue for the economic benefits of saving businesses, both large and small, time in filing taxes as well as letting them keep more of their revenue. More cash on hand for the private sector will boost job creation, and also spur innovation, as more resources could be dedicated to research and development.
Republicans would love to get rid of the corporate tax, and so should Democrats. Eliminating corporate subsidies and other tax loopholes would be a requirement, and corporations would no longer receive the benefits of a broken code. Businesses would be left to themselves and the use of their own capital, which would drive innovation in the marketplace and prevent the government from sponsoring large corporations and allow for proper competition for better services.
Currently, there are six different tax brackets for varying income in the individual tax code. The only change in tax policy has come from the fiscal cliff deal at the beginning of the year, in which those who earn over $400,000 pay the same tax rates they did under former President Bill Clinton.
The individual income tax should be reformed drastically, and in a very similar fashion to the previously mentioned reforms for the corporate tax. The U.S. should clear the individual tax code of deductions and credits, and use the savings to lower the overall rate. Instead of going through the hassle of having to review deductions, it would save more time if individuals had to pay a simple rate based on income: 8 percent, 15 percent, and 25 percent and tax capital gains as ordinary income.
These rates would be sufficient enough to maintain current funding levels, and perhaps raise more revenue because the code is now fairer and simpler, and reduces abuse of the tax code system by wealthier individuals. A reformed system would also help reduce inequality by treating capital gains as regular income, and also lowering rates for those who need it while increasing the rate for those who don’t.
Republicans would love for Democrats to subscribe to this plan because it lowers tax rates and helps businesses. Democrats should love the plan because it helps reduce underlying inequalities in the system in a simple fashion without the need for another government redistribution program. Also, reducing the bureaucracy at the Internal Revenue Service would benefit everyone, and a simpler tax system will help keep businesses in line with a faster pace global economy.
Tax reform should be a pragmatic and obvious issue for both Republicans and Democrats, but both parties must look beyond their archaic talking points and instead address the issue with logic. There is an opportunity for both parties to achieve some of their most important goals, and an opportunity to make America the best country for business in the world.
Party politics should not stand in the way of comprehensive and game changing tax reform.
John Foti is a sophomore in the School of Public Affairs.